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We've devoted a fair portion of our reporting over the past year to home ownership and foreclosure. Some of those stories ran again, with updates, during the last week of the year. Today comes the official tally for 2010: more than one million homes foreclosed on, with another FIVE million homeowners at least two months behind on their payments, according to foreclosure tracker RealtyTrac.

Rick Sharga, a vice president at the firm, says this year isn't looking any better. "We could easily see a 20 percent increase in both total foreclosure activity and bank repossessions in 2011," he told us, adding that he expects it to be "the peak year for foreclosure activity."

Why? Higher interest rates, a predicted continuation of the drop in real estate prices, persistent unemployment. Foreclosures slowed at the end of the year, due to the robo-signing controversy. But banks are reportedly gearing back up to repossess properties after fixing the paperwork.

As usual, the future is inscrutably murky. A recent Massachusetts court decision again called bank paperwork into question. That could slow foreclosures yet again. But regardless, the high anxiety of underwater homeowners is unlikely to be allayed - short of medical intervention - anytime soon.

At last weekend's annual economics convention, we spoke with half of the famous Case-Shiller real estate index, Karl "Chip" Case. He was worried about the larger implications of moribund market.

"We haven't figured out what's going to happen to the housing market yet," he began. "I would have thought two years ago, three years ago, that by now we would have that sorted out. But we haven't."

Case was surprised by an apparent economic recovery without a recovery in housing and all the bad debt held against real estate that's worth less and less.

"The housing market's still about 8 million in properties under water, and that's a conservative guess. It's Fannie [Mae] and Freddie [Mac]. It's the banks. There's a lot of paper out there. $10 trillion dollars of paper, and a lot of it is not on the books at its true value. The big portfolio holders -- Fannie, Freddie, FHA [Federal Housing Authority] -- have no idea, to be frank with you, no idea what the paper they're holding is worth and I think it's a potential time bomb. If housing prices were to go down 15% from here, it's just untold additional losses."

And a grim tidings for the financial system - and the economy as a whole.

Foreclosures jumped 16 percent to 2.9 percent of serviced mortgages, while home retention actions such as loan modifications rose 21.7 percent, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a report.

"The mortgage data reported for the second quarter of 2009 continued to reflect negative trends influenced by weakness in economic conditions, including high unemployment and declining home prices in weak housing markets," the report said.

The report covers mortgages serviced by most of the industry's largest mortgage servicers, whose loans make up about 64 percent of all mortgages outstanding in the United States.

The regulators said there was a lull in newly initiated foreclosures during the second quarter as mortgage servicers worked to implement the federal "Making Home Affordable" program.

The $50 billion program, launched in March, is designed to stabilize the housing market by helping up to 9 million Americans reduce their monthly mortgage payments to more affordable levels.

The OCC and OTS said the emphasis on the program contributed to a dramatic shift in the composition of home retention actions toward lowering payments. Previously, the vast majority of loan modifications either did not change or increased monthly payments.

The weak economy continued to drive up the number of delinquent mortgages. The number of mortgages delinquent 30 to 60 days jumped 10.9 percent during the second quarter to 3.2 percent of all mortgages covered by the report.

The number of mortgages that were more than 90 days delinquent increased 11.5 percent, rising to 5.3 percent of serviced mortgages.

Separately, the Mortgage Bankers Association said on Wednesday that U.S. mortgage applications fell last week despite the lowest loan rates in four months, another sign that housing will likely recover slowly from its three-year plunge.

(Reporting by Karey Wutkowski, editing by Gerald E. McCormick and John Wallace)